UK Mail’s forced move to new premises has had a disastrous short-term impact on the business with full-year profit now expected to be half that achieved last year, the company warned today.
Due to the advance of HS2, UK Mail moved to what should be an almost fully-automated new hub in Ryton, Coventry from its previous home in Birmingham, which was purchased by the DfT.
The operator had hoped the switch would see it increase the proportion of parcels it sorts automatically from 20% to 80%.
However, having warned that teething problems had dragged down its full-year profit for the year ended March 2015 in May, UK Mail has now said that the impact of the expected short-term challenges “are more significant than anticipated”.
“While parcel volumes for the first four months of the new financial year were some 4% ahead of the comparable period last year, the move has caused a greater level of customer churn and loss of volume than anticipated, with an associated adverse impact on parcels revenue mix.
“In addition, a greater than anticipated proportion of current parcels volumes is incompatible with UK Mail's new automated sortation equipment, resulting in additional operating costs and therefore a delay to the full benefits expected from automation,” UK Mail said.
It did add that its access-mail business continued to perform well with volume up 6% during the first four months of the new financial year.
Despite this, and management action to address the problems at the new hub, UK Mail expects pre-tax profit for the year to be “materially below current market expectations” at £10m to £12m. That compares with £21m the year ended March 2015.
Guy Buswell, CEO of UK Mail, said: "This near-term setback to our financial performance is clearly very disappointing. However we are taking decisive action to address these issues and we are confident that they can be reversed.
"The completion of our new fully-automated hub represents the largest strategic development in our corporate history and the rationale for this significant investment remains compelling.”
Buswell added that with a number of significant customers keen to use UK Mail’s services as a result of the investment, he remained confident about its medium and long-term growth prospects.
